How to Make a Non-Disastrous Debt-Limit Deal

Oct. 3 (Bloomberg) -- We are nearing the limit of the
borrowing authority that Congress has given the federal
government.

Almost everyone agrees that the debt ceiling needs to be
raised. Not even the flintiest conservative has advanced a plan
for bringing the U.S. budget deficit to zero in the next few
weeks. And the consequences of hitting the debt limit seem
highly likely to be disastrous -- even coming near it in 2011
seems to have hurt the economy.

Ideally, Republicans and Democrats would agree to couple
the increase in the debt ceiling with measures to address the
underlying problem that keeps leading to increases: the mismatch
between our spending commitments and revenue. The debt limit
provides the only occasion on which Congress and the president
have to take responsibility for the amount of debt their fiscal
policies generate.

This spring, I outlined some ideas for reducing the dangers
of hitting the debt ceiling, and some ideas for reducing long-term debt that might generate bipartisan consensus. Watch the
news for a few minutes, and you can see that no such consensus
has gelled. No serious attempt has even been made to create one.

Republicans, meanwhile, have adopted an unrealistic sense
of how much of their policy agenda they can achieve by tying it
to the debt limit. (An unrealistic sense of leverage seems to be
a pattern with them this year.) Many of them want to force
President Barack Obama to make major changes to his health-care
law, and in return give him nothing but the debt-limit increase.

No Precedent

There is no precedent for the satisfaction of such demands.
Look back at every previous piece of legislation that raised the
debt limit while also making changes to other government
policies, and almost always the debt limit was the occasion for
a bipartisan deal rather than the achievement of only one
party’s goals.

The one partial exception came in 2011, when Obama agreed
to spending cuts without getting any tax increases. But even
that deal illustrates the constraints of the debt limit as a
tool for advancing one party’s agenda. Republicans had to accept
that half the spending cuts would come from defense, which
Democrats liked more than they did. And for all the wailing that
sequestration has produced, it was more modest than what
conservatives are asking for this year. It was not a structural
change to the welfare state or a reduction in its scope.

So the question now is -- or should be -- whether any
genuinely bipartisan deal could be coupled with an increase in
the debt ceiling. Reaching a deal would require what all
voluntary exchanges do: a symmetric inequality of value.
Republicans would give ground on policy A to gain it on policy
B. A deal would be possible because Republicans valued B more
than A, and Democrats valued A more than B.

So, for example, Republicans might offer a temporary
increase in spending from the levels of sequestration in order
to delay the time when the Internal Revenue Service starts
fining people for not buying insurance (which is scheduled for
the spring of 2015). Republicans might do this because they
think that delaying the mandate will make it easier for them
eventually to get rid of the health-care law, and Democrats
might do it because they think their law will grow more popular
with time. In that case, they couldn’t both be right, but they
could both be happy about the deal at the time they made it.

At the same time, a deal should include policies that
minimize the potential damage of a future debt-limit standoff.
The most important one would be a law stipulating that even if
the debt limit is breached in the future, the government will
still be authorized to make debt-service payments in full,
taking a default off the table. Republicans in the House have
already passed a bill that would come close to doing this. Once
this change is enacted, hitting the debt limit would mean having
a partial government shutdown -- which isn’t great, but not the
disaster a default would be.

Backing Off

Could any of this happen? Well, most Republicans have
already backed off the demands that their maximalists have been
making: A majority of the House has already voted to keep the
government funded without defunding Obamacare (but making
changes to it). House Speaker John Boehner has said that he
would rely on Democratic votes if necessary to prevent a
default. And he has also, at least through leaks, put relief
from sequestration on the table.

When the House Republicans passed their bill to reduce the
risks of a default, they implicitly acknowledged that the threat
of default doesn’t actually provide the leverage to get anything
constructive done, or at least anything worth the potential
costs. They should follow that logic to its conclusion.
Republicans can end the government shutdown, avoid a default and
get a policy victory -- but only if Democrats get one, too.

(Ramesh Ponnuru is a Bloomberg View columnist, a visiting
fellow at the American Enterprise Institute and a senior editor
at National Review.)